Fuel Oil Beats Gasoline, Diesel on Shipping Demand

(Bloomberg) — Fuel oil for the first time in two years is rising faster than gasoline, jet fuel and diesel, increasing the cost of ocean freight and electricity.

Demand for the fuel used in marine engines and power plants is accelerating because the world shipping fleet is growing at a record pace. Refiners are selling less fuel oil, the residue from refined crude, as they invest $20 billion over the next five years in more-profitable products.


“Every new refinery wants to produce more gasoline and diesel and cut back fuel oil,” said Simon Neo, a broker with the Singapore unit of Norway-based Wilhelmsen Bunkers SA. “And more ships coming into the market adds up to a supply crunch.”

Fuel oil’s gains will increase earnings at refiners Valero Corp., ConocoPhillips and Royal Dutch Shell Plc, while costs will rise for shipowner A.P. Moeller-Maersk A/S and Tokyo Electric Power Corp. Utilities may burn more natural gas, increasing demand for North America’s second-largest energy source.

The rebound in fuel oil spurred Morgan Stanley, the biggest oil trader on Wall Street, to hire specialists in handling the commodity, the cheapest and dirtiest of liquid fuels. In Singapore, Asia’s trading hub, Morgan Stanley competes for cargoes of the fuel with BP Plc, Royal Dutch Shell Plc, Chevron Corp., Glencore International AG, Trafigura AG and Goldman Sachs Group Inc.

Bloomberg